Entertaining staff and clients is one of the fun parts of business. Sharing each other’s company in an environment away from the office, which often involves food & drink, can help with building work relationships with both clients and employees. But can you claim any tax relief on the money paid to entertain?
ARE STAFF ENTERTAINMENT EXPENSES TAX DEDUCTIBLE?
HMRC state that ‘staff entertaining is allowable so long as it is wholly and exclusively for the purposes of the trade.’ That means expenses associated with the entertaining of staff including food & drink, accommodation, travel and entertainment are allowed as long as they meet the following requirements.
- The total cost, per head, must not exceed £150 (inc. VAT) per annum. This is an inclusive figure for all expenses associated such as transport and accommodation
- The £150 is not an allowance but a limit; if the cost per head is greater than £150, the whole value is taxable
- The event must, primarily, be for entertaining staff and must be open to all members of staff (if you have several branches, all staff in that location)
- The event cannot be only for directors, unless all staff are directors
- The cost of the whole event is an allowable expense for your business
- You can claim back input VAT but this can be restricted when you are also entertaining clients
For example, if you have a Christmas party and you are entertaining 10 employees then £1500 is the maximum can be spent on the entertainment; anything over this and the entire cost will be taxable.
CAN I CLAIM FOR ENTERTAINING CLIENTS AND BUSINESS
There will be times when you will need to entertain a potential customer to help build a relationship and increase the possibility of doing business. Can you can reclaim the costs? The entertaining of clients, customers and other non-staff business contacts is, unfortunately, not tax deductible.
HMRC employ complex rules which will determine the allowance of entertainment costs in regards to tax; you need to prove that there is a direct benefit to your business in order to reclaim the expenses.
WHAT COUNTS AS AN ENTERTAINMENT EXPENSE?
HMRC considers entertainment expenses as those you incur when providing free or subsidised hospitality to staff or clients. Entertaining costs includes, but not limited to, food and drink, event tickets (sports, theatre, concert etc.) and activities (karting, team building, escape rooms etc.).
CAN YOU RECLAIM THE COST OF ENTERTAINING CLIENTS AGAINST CORPORATION TAX?
If the sole purpose of expenditure is to make profit for your business, then HMRC will class costs as allowable and you will be allowed to claim them back your annual accounts. However, there are certain rules regarding what businesses are allowed to claim back and HMRC say some specific entertainment expenses are non-allowable; you can’t claim them back. These non-allowable expenses include: entertaining clients and suppliers.
CAN THE VAT ON ENTERTAINING BE CLAIMED BACK?
If you are entertaining staff, then HMRC class it as as “staff entertainment”, which is allowable. You may also be able to reclaim any VAT you pay on entertaining staff. This rule only applies if you are entertaining your employees; if clients are being entertained then you will not be able to reclaim any of the VAT. If you are entertaining both clients and staff, then you can only claim back the VAT that is spent entertaining your employees and not the VAT that is spent entertaining clients.